Three main definitions:
1.) To say something insulting or rude about another person, either to their face or behind their back.
2.) To make a statement that is exaggerated or flat-out untrue
3.) To say something negative behind someone's back that you wouldn't say to their face.

1.) She likes to talk a lot of shit when she gets drunk, "That guy is a fucking creepy stalker", when all the guy did was try to start up a conversation with her.

2.) "I can skate so ill, I did a 50/50 to a frontside boardside and landed doing a manual" or "My cousin's best friend in high school was Tony Hawk, and one day I met him and we chiefed some killer bud together!"...statement made my a poser "skater" who can barely do an ollie while in place on a skate.

3.) "She's such a whore", said in a serious way, by a girl who is actually good friends with another girl who just happens to be dating a guy she kind of liked; a comment made out of flat-out jealousy or envy.